Keep whistlin’

Not long ago they were playing it down. Now they’re whispering the dreadful date ” the worst since 1929.” “Today will be a day to endure and survive,” blogs the BBC’s Robert Peston. Events are moving fast towards an unknown destination. “The European Central Bank has pumped 30 billion euros into the system” the BBC reported at 10.30a.m. Only hours before Bloomberg was reporting that European policy makers had concluded talks in Nice, France, without breaking new ground on how they would share the bailout cost if a bank collapse threatened to spread across the region. Added Reuters, “the Bank of England said it would act if necessary”. By 11 0’clock the Bank of England had acted, to the tune of £5 billion.

In the US in the night time hours, part of the story has moved on already.

The Wall Street Journal “The deal is all the more dramatic because Merrill, upon the arrival of Mr. Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg LP. That Merrill has opted to sell itself thus underscores the severity of the crisis”.

Likewise the Times analysis: “ ‘Black Monday’ threatens London”

We can only wait and see, nothing else to do – you can rail against the capitalist system if you want…

  • It is certainly a situation where one like me can only rail mindlessly about what is going on since the fat cats who made all their killings on the markets have now secured their investments in all kinds of ways, while we poor bastards are only able to revel as the markets collapse, largely now at our own expense. It’s kind of like what Nero did when Rome was burning

    P. s., since Mick is on vacation, and I have not been able to get hold of him, how about some thread starter, starting one about the unexplained quashing of Danny Morrison’s convictio?

    It would give posters like me a chance to rail about other injustices to more positive advantage!

  • weeslabber

    How soon before a run on the banks. I am getting jittery!

  • Rory

    As I watched the New York Times news alerts flash up in my emails and listened as the gloom deepened on the radio I could not help but reflect that George W Bush, with his fundamentalism belief in Mammon, has done irrepairably more damage to the US finance sector than fundamentalist Islam was ever able to achieve on 9/11.

    There are of course three important measures that must be taken immediately to mitigate the damage:

    1. Screw the shit outta the poor.

    2. Invade somewhere – anywhere!

    3. Screw the shit outta the poor some more.

  • It was Sammy Mc Nally what done it

    Regulation, Regulation, Regulation – should replace the Labour Governments’ battle cry of Education X 3.

    The Economists and Financial men either dont know what the feck is going on and/or the theoretical framework which underlies Western Financial Systems is completely inadequate.

    This could be a good battleground for the beleaguered El Gordo as he strives in vain to drive a wedge between Posh Boy Dave’s neo cons and middle England.

  • harry

    i am sure our NI politicos will solve this complex problem, but once we get P&J;sorted. afterall P&J;is much more important than this recession depression stuff.

  • Dave

    In Ireland, we could miss the point and complain about capitalism or we could address the actual cause of current monetary woes: transferring sovereignty over monetary policy from the Irish Central Bank to the European the Central Bank, with the result that interests rates were set a full 4% below the needs of the Irish economy, thereby supplying money to borrowers at artificially low rates that they could not afford to repay in real terms (i.e. when reality was reintroduced into the market). The result of this surrender of sovereignty is that we are now in the same shit creek as the Europeans, thanks to the government throwing the country into it and bringing the Irish economy to a halt after inflating it with rapid house price inflation due to the low interests rates set by the EU. There are very real and detrimental consequences to surrendering sovereignty to foreign agencies, and this is a classic example of it. The best explanation of this reality came in a report from Davy Stockbrokers in 2006, a division of the Bank of Ireland:

    “When the euro was introduced in 1999, the key imponderable was the answer to the following question: how would the “one-size-fits-all” macroeconomic policy framework satisfy the requirements of such a diverse group of economies? Fiscal policy was still at the discretion of national governments, albeit with meaningful constraints imposed. But individual governments or monetary authorities could no longer influence exchange rates. More importantly, control of monetary policy was lost.

    Ireland has had few fiscal or exchange rate worries since the inception of the single currency. At no time has the general government deficit even approached the 3% Maastricht limit. The country’s debt/GDP ratio is the second lowest in the eurozone at 30%, not within shouting distance of the 60% danger zone. Arguably, if Ireland still had the punt, it would be trading close to parity against sterling (instead of the effective 88p it buys today). Indigenous exporters would be much more vocal in their call for assistance to combat market share and margin erosion. Against this, consumer price inflation would be somewhat lower. On balance, stringent budgetary rules or the loss of the punt have not negatively affected Ireland’s economy.

    But losing control over monetary policy to Frankfurt in 1999 has had an impact on the Irish economy. Think of record housebuilding, annual credit growth running at 25%, a near doubling in house prices, and 5.5% average inflation in the service sector. While potentially storing up problems for the future, interest rate-sensitive sectors of the economy contributed handsomely to three years of above-trend growth, followed by a strong recovery from a shallow recession. All of which poses the important question: at what level would the key policy rate stand if the Central Bank of Ireland still had control over it?

    The simplest way to estimate the appropriate policy rate for Ireland is to use the Taylor rule. It specifies that the real policy rate reacts to two crucial variables: deviations of inflation from its targeted level and deviations of real GDP from its long-run potential. The rule sets the nominal policy rate equal to the rate of inflation plus an equilibrium real interest rate and the weighted average of the aforementioned deviations. John Taylor found that it neatly described the US Federal Reserve’s decision-making process and it is now widely used by forecasters to estimate the desired level for policy rates.

    Putting all of this together, we reckon that an appropriate policy rate for Ireland is around 6%, fully four percentage points above its actual level.

    There is no doubt that an inappropriate policy rate for Ireland is fuelling the booming residential construction sector. One way to think about it is to imagine the mayhem that would ensue were interest rates to rise to 6%. Our worry is that an elongated boom could lead to a more severe correction in the housing market when rates finally begin their ascent (to 3% rather than 6%) or when sentiment changes. A return to higher inflation rates may also occur. Private-sector credit is growing at 26% year on year while services and construction wage inflation is back up to 7%. We may well have to rely on another tool beyond our control to keep inflation in check—further appreciation of the currency.”

    http://www.davy.ie/content/pubarticles/wmccr20050124.pdf

  • Jean Baudrillard

    How soon before a run on the banks. I am getting jittery!

    It is a run on the banks, weeslabber. It’s just that it’s not a run on the old fashion ‘high street’ banks – the sort that only lends money that they have collected from savers.

    The run is on investment banks who have loaned money using money that they’ve borrowed from other institutions rather than taken from deposits.

    This is actually a much more worrying situation as this borrowing has occured right across the international market. The skeletons are popping up everywhere – no one knows for sure where the debt is hidden.

    If this insanity does not lead to agreement on the regulation of the financial sector, I’ll be amazed.

  • Wub Webmadge

    Northern Rock was £3.4 billion put in on behalf of 60 million people. The above refers to €30 millard being put into the whole market on behalf of 300+ million.

  • DC

    I think ethical banking standards is a key theme Labour has missed out on as it fits in with the New Labour approach to making capitalism work for people, but when it doesn’t why doesn’t it and what to do about it? Rather than loft insulation it should be driving deeper into this scandal in the banking practice in its certain sectors.

    Corrupt capitalism via nil regulation or ethics in undisclosed lending systems has ruined the finance structure, over-heated everything and now it’s payback but without the money.

  • Dewi

    What’s a Millard Wub? A type of duck?

  • Rory

    No, Dewi. It’s a tough guy who grinds corn for a living.

  • Ann

    Take your money outta the bank and put it under the mattress, or spend it frivilously since in no time at all it may not be worth the paper its written on 🙂

  • Okay, this is a complicated situation, but let’s get some perspectives right.

    Within Europe, the current crisis has more to do with growth being premised on an inflated housing market, more like a pyramid scheme. Worse affected areas Ireland and Spain (where no one’s buying second holiday homes anymore). House prices still have some way to come down, even in NI (IMHO).

    Within the USA, the crisis is one of the US Government’s own making, and what a mess they’ve created.

    In pure market terms, all those banks (like Northern Rock in UK) that overlent should just go belly up. Don’t fear the ordinary saver: up to c. $200K insured, and rightly so. It’d be the shareholders, managers, and sadly, bank staff who get stiffed.

    However, it’s worse than that. It looks like practically every US financial institution was playing a scheme, whereby they could borrow at low Government interest rates, then speculate on higher-reward goodies, smugly knowing that all those risky sub-prime mortgages were backed by Fannie Mae and Freddie Mac, backed by the US Government, right?

    What disturbs me was that Fannie & Freddie themselves were playing this game. Their bailout was like French socialism: private side got the rewards while the taxpayer pays the risk.

    For me, the culpability lies with the US Congress for letting Fannie & Freddie get so out of hand. They so distorted the financial marketplace with their abuse; they were set up to insure ordinary house mortgages, not be an enormous hedge fund for all sorts of exotic investments. I think they should really be broken up. After all, these institutions don’t exist in the UK, and while the economic situation isn’t much better, their absence isn’t making it worse. If anything, Fannie & Freddie’s screw up is making it worse for all of us.

  • DC

    Ultimately, banks cannot and will not lend money because they cannot determine the actual balance sheets, so they neither lend money between themselves or to businesses as the banks need to figure out what liquidity is needed to plug their own balance gaps, if any.

    Ergo, economic growth is severely restricted and confidence capped, growth then premised upon extremely high lending rates if available at all.

  • Greenflag

    J.Baudrillard

    ‘This is actually a much more worrying situation as this borrowing has occured right across the international market. The skeletons are popping up everywhere – no one knows for sure where the debt is hidden.’

    Here’s another skeleton 🙁

    Sept 15 – Bloomberg News .

    American International Group Inc., the largest U.S. insurer by assets, fell by almost half in early trading as the company failed to present a plan to raise capital and stave off credit downgrades.

    AIG executives spent yesterday in discussions with buyout firms including KKR & Co. and J.C. Flowers & Co. as the insurer sought to raise $20 billion in capital and sell $20 billion of assets, people familiar with the talks said. AIG later sought a $40 billion bridge loan from the Federal Reserve, the New York Times reported’

    ‘ If this insanity does not lead to agreement on the regulation of the financial sector, I’ll be amazed.’

    What we are witnessing is nothing less than the ‘fruit’ of beetle browed adherence to ‘free market’ economics taken to the n th degree . This has happened before . During the ‘golden age’ of untrammelled international capitalism , millions of people died worldwide ( including India and Ireland ) as they were ‘forced’ to integrate into the economic and political structure of Empire . The sacred principles of Adam Smith , Mill and Bentham were more important than people’s lives .
    At the height of the Indian famines of 1877,1878 and 1890 in which 27 million died , India continued to export ‘grain’ to England .

    Fast forward to 2008 and we have the same situation being played out again in essence . Of course a few things have changed since the mid 19th century . The increasing gap between the wealthiest and poorest in the developed world and particularly in the USA . is the same as what happened in the late 19th century as European empires reached out to ‘grab’ whatever they could of the natural and other resources of the non european .

    Government cannot run business we saw this with communism . The opposite is also true . Left to their own untrammelled devices large corporations and the Wall St paper shufflers and their proteges in the present Republican administration would ‘loot ‘ the entire world if they could get away with it . Haliburton and Blackstone are certainly putting in a great effort in Iraq at the expense of course of the American taxpayer 🙁

    What America (and the world ) needs is a return to 1932 and a new Deal for middle and working class Americans. For those who say it can’t be done – the same was said in the 1920’s by Herbert Hoover and the ‘big corporate’ interests of that time also . Along with the above there will have to be increased regulation of the financial markets and the criminal justice system will need to be ‘updated ‘ and refocused on the ‘white collar ‘criminal element ‘ who have profliferated on the backs of the USA’s middle and working classes over the past several decades .

    This administration by going on an unnecessary war took it’s eye off the ‘real ‘ purveyors of weapons of mass destruction -namely the Wall St ‘deriviative ‘ and ‘hedge fund’ practitioners of voodoo like ‘investments who somehow convinced too many banks and investors world wide that if you add up all the risky bad loans into one big parcel and call it by a french name then somehow hey presto it becomes a ‘great ‘ investment .:(

    The ‘death penalty’ is wasted on the average murderer in the USA . Probably the only way to get some ‘ethics’ back into that casino is through introduction of the ‘death penalty and state confiscation of a convicted mega fraudster’s family’s entire assets for crimes of a ‘capitalist ‘ nature !

  • Greenflag

    Yank in Ulster ,

    Overall your precis is on the nail. However all of the above in your post has been taking place at a time when perhaps 200 million plus of americans have been losing ‘relative ‘ ground in terms of real incomes over the past two decades .

    This present crisis to an extent is ‘covering ‘ up the real crisis within american ‘democracy ‘ which is the unprecedented increase in the income gap between a small minority and a much larger emisserated middle and working class .

    There is more to this ‘crisis ‘ than just Freddie mac or Fannie mae .

    DC ,

    ‘ Corrupt capitalism via nil regulation or ethics in undisclosed lending systems has ruined the finance structure, over-heated everything and now it’s payback but without the money.’

    Bad capitalism driving out ‘good ‘ capitalism. .

  • Greenflag

    Dave ,

    ‘In Ireland, we could miss the point and complain about capitalism or we could address the actual cause of current monetary woes’

    You are missing the point – It’s not that people are complaining about ‘capitalism ‘ they are just pointing out that left entirely to itself the ‘free market ‘ will destroy not just itself but our ‘democracies ‘ along with it !

    The present crisis in Ireland goes right back to Wall St and it’s voodoo financial services sector who have looted their way throughout the world’s banking and investment system like some latter day Al Capone and have done so with a nod and a wink from Bush & Cheney & Co 🙁

    The EU countries with the exception of Ireland , the UK and Spain will not suffer the housing market downturn for reasons which are due to long standing differences in attitude towards housing ownership in France, Germany, Sweden etc.

    The entire world economy will suffer from the self inflicted economic recession self inflicted on the USA by an inept and corrupt administration .

    The EU and Brussels are in comparison – knights in shining armour even if a large number of them have German and French and Dutch accents !

  • Greenflag,

    I don’t think your and my arguments are a million miles away, just different emphasis. (I’m a happy Keynesian at the end of the day.)

    I’m mindful of the rise of Socialism and Communism in early 20th century, and the thinking that they’d take over Capitalism. One reason this didn’t happen Stateside was precisely FDR’s reforms: the ability for Government to intervene and modify the worse aspects of unfettered markets. (FDR was at times accused of being Socialist; hardly, this wealthy man was there to save Capitalism!)

    Hopefully this crisis won’t descend to the collapse of the US banking system in the 1930s. Once individual savers gained confidence that their cash was safer in the bank than under their mattresses, they system recovered.

    In this crisis, though, it’s the banks and financial institutions — going far beyond behaving like ordinary savings and lending bodies — which are melting.

    ATEOTD, Government will have to seriously update regulations. My argument is to start at home, on the source of the misery, Fannie and Freddie — two Government-created bodies. The last thing we need is more taxpayer money bailing out incompetent/greedy/overexposed private companies.

    To bring this closer to home, Barclays was mooted as a potential saviour for Lehman Bros, but Barclays only wanted the good bits (assets, no debts).

    I think there’s more shakedown to come for home-based financial institutions.

  • Greenflag

    Rory

    ‘I could not help but reflect that George W Bush, with his fundamentalism belief in Mammon, has done irrepairably more damage to the US finance sector than fundamentalist Islam was ever able to achieve on 9/11. ‘

    You are not alone in your reflection.

    With an estimated net worth of around US$62 billion, Warren Buffet was ranked by Forbes as the richest person in the world as of February 11, 2008.

    Often called the “Oracle of Omaha,”Buffett is noted for his adherence to the value investing philosophy and for his personal frugality .

    Buffet has referred to the ‘machinations of the Wall St derivatives and hedge fund voodoo merchants as the ‘real’ weapons of mass destruction which Bush/Cheney & Co have unleashed on the American people . Buffet has put his support behind Obama . If anybody knows whats ‘happening’ in the USA economy it has to be Buffet .

    ‘There are of course three important measures that must be taken immediately to mitigate the damage:

    1. Screw the shit outta the poor.

    2. Invade somewhere – anywhere!

    3. Screw the shit outta the poor some more.’

    LOL – it’s the way you tell em 🙂 Truth as humour or would that be versa vice ?

    You omitted however one very important further measure which will ‘mitigate ‘ the damage :(.

    4) Re-elect a Republican President so America and the world can have a repeat performance of even more financial uncertainty , wars , and housing market instability for the next 4 years .

    Sloganised as

    ‘Give the Masters of Disaster another 4 years – This time around we promise to get it right ‘

  • Greenflag

    Yank in Ulster ,

    ‘The last thing we need is more taxpayer money bailing out incompetent/greedy/overexposed private companies. ‘

    Well they bailed out Bear Sterns so Lehman ‘assumed ‘ they’d be bailed out also.

    Bank of America was also touted as a ‘saviour ‘ but even they were not up to the risk – they are perhaps ‘wisely’ focusing on ‘bailing out ‘ Merrill Lynch .

    ‘I don’t think your and my arguments are a million miles away, just different emphasis.’

    ‘Keynesianism’ happy or otherwise is having some serious challenges in this ‘global ‘ economy .
    One would think that anybody with a grasp of human ‘nature ‘ would have realised that the ‘deregulation ‘ of the banking system and associated financial services would sooner or later create a ‘greed monster’ .

    But then all the politicians care about is the short term till the next election and the hope of hanging on the the public purse for another term ! Given the ‘real ‘ problems facing the planet – climate change , Co2 emissions , desertification , and the mass migration of starving peoples – there is a real dichotomy between the ‘issues’ and any capability never mind will of national governments to deal with them .

    People comment often that we live in a throwaway ‘civilisation ‘ . Seems to me that the ‘beetle brows ‘ of the neo con ultra right nutters – are determined to throw away our ‘civilisation ‘ in an orgy of ‘creative ‘ destruction 🙁

  • Dave

    Err, Greenie, I do believe I was arguing for appropriate regulation. The clue being in my agreeing with the article I posted from the analysis at Bank of Ireland. We can’t set appropriate rates for the underlining dynamics of the Irish economy because sovereignty has been transferred to those who set inappropriate rates for the needs of the Irish economy under a one-size-fits-all policy.

    In short, when the needs of your economy demands interests at 6% and the EU ignores the needs of your economy and sets interest rates at 2%, what do you think happens? You guessed it: folks borrow cheap money, max out on credit, and then can’t repay it when those underlining dynamics come back into play and the cheap credit that was proffered by the EU vanishes, leaving them with massive debts that can’t repay.

    This is exactly what happened to the Irish economy. WE are now at the mercy of forces we can’t control because we have surrendered the power to control them to those who got us into this mess, i.e. the EU and the European Central Bank proffered cheap credit.

    You, of course, adore globalisation, but I think you’ll find that if this bites badly that folks will wisely not surrender control to forces that were pivotal in engineering the supply of cheap credit in the EU, the European Central Bank which set interests rates at a ridiculously low level of 2%, and very real prospect of a lot of that money that they supplied to cheaply not finding its way back to the borrowers.

    We in Ireland would be whistling if we weren’t stupid enough to join the Eurozone: we’d still have our Tiger economy built on real growth rather than our failed economy built of rapid house price inflation fuelled by the European Central Banks supply of cheap credit – and the massive debts that go with it.

  • Dave

    “not finding its way back to the [b]lenders[/b]”

  • Greenflag

    Dave ,

    ‘WE are now at the mercy of forces we can’t control because sovereignty has been transferred’

    That’s a crock of shit . Ireland as Free State or Republic has always been at the mercy of forces we can’t control . The US Stock market just this morning dropped 300 billion dollars in share value which is greater than than Irish total GDP (Republic and NI )in one year.

    ‘We in Ireland would be whistling if we weren’t stupid enough to join the Eurozone’

    You mean whistling like the UK who are NOT in the Eurozone . Funny you should mention that but as of now no major Irish Financial Institution has done a Northern Rock . That’s not to say it won’t happen in the wake of the present ‘melt down ‘ in USA financials.

    ‘we’d still have our Tiger economy built on real growth rather than our failed economy’

    The Irish economy will go through a recession in the aftermath of the American one -so too will the world economy . The Tiger economy was never going to last forever . Even the Chinese who have been growing at 10% are slowing down and will also be affected by the American led recession .

    Now if Ireland had massive oil reserves like Norway or hundreds of years of interest bearing wealth safely deposited in Switzerland than it might make longer term sense to be ‘outside ‘ the Eurozone .

    But we’re not Norway and neither are we Swizerland and we certainly don’t want to be like the poor Brits who get screwed by the money changers everytime they leave their country and return home to be screwed again by the high street shops who charge more for their ‘imported ‘ chinese made products than in any other major city in the EU .

    Try and get used to the EU – It’s going to be around for another 100 years and Ireland will be remaining a member -regardless of the ups and downs of the ‘market’

  • Jean Baudrillard

    Yank in Ulster: ‘For me, the culpability lies with the US Congress for letting Fannie & Freddie get so out of hand.’

    It’s interesting to look at the origin of these beasts – with Fannie set up by FDR to support mortgages for the ‘average American’.

    They were theoretically ‘privatised’ in the 1970s – but only by sleight of hand. These have always been state institutions. They weren’t ‘nationalised’ last week – the existing sleight of hand simply failed and their true character was revealed.

    What is an interesting thing to note is that state institutions have been a fundamental requirement for making US and global capitalism ‘work’. Without the underpinning of the Fed’s blank chequebook the chimera of liberal economics disappears.

    Funny, isn’t it? We thought socialism was dead -only to discover that such reports have been greatly exaggerated. It’s alive and well and living at the US Fed.

  • Glencoppagagh

    Jean
    Interventions by regulators and especially central banks have got nothing to do with socialism.
    Their role is to protect the staability of the banking system in order to avoid the extreme consequences.
    The fundamental problem has been the development of complex financial which were designed to diffuse risk but have, as we now realise, also promoted an overly relaxed attitude to risk. The central bankers/regulators did not appreciate this soon enough.

  • Greenflag

    glencoppagh ,

    ‘The fundamental problem has been the development of complex financial which were designed to diffuse risk but have, as we now realise, also promoted an overly relaxed attitude to risk. The central bankers/regulators did not appreciate this soon enough.’

    Very true on the surface but also trite in the sense that the ‘overly relaxed attitude ‘ emanated not just from the regulators but from successive administrations who had’nt a clue what a derivative was or a hedge fund and who took the words of the investment bankers and their neo con corporate backers at face value – and this despite the record down through the ages that if you give anybody a ‘license’ to print money they will do so . If you give the Gordon Gecko’s of Wall St a license to provide their own ‘ethical’ standards to protect investors then you should’nt be surprised at the present outcome .

    Have a read up on how Chairman of the SEC Cox ‘handled ‘ the present crisis last week . Theres an interesting program on NPR – Go google

    ‘Naked short selling , NPR ‘ for a revealing look see at how Mr Cox the so called ‘regulator’ ensures which of his ‘buddy banks ‘ survive and which don’t !

    See if you can pick out which of the next 100 financial institutions won’t bite the dust in the coming weeks .

    Meanwhile back at the ranch in Crawford Texas – Dubya is reassuring the markets that all is well meanwhile the Chinese now top Japan as ‘holders’ of American securities and the USA’s deficit foes another 500 billion in the hole !

    Nothing like ‘real ‘ conservative tooth and claw red raw capitalism in action to scare the living shit out of the world’s economies eh ? Greenspan is now saying it’s a once in a hundred years event ? Well he would would’nt he .

  • Greenflag

    J Baudrillard ,

    ‘We thought socialism was dead’

    You might want to research the topic ie socialism . What Americans see as ‘socialist ‘ passes in Europe for social democracy . Neo Con capitalism is the exploitation of man by man -Communism is vice versa . What most europeans interpret as socialism is a form of governance that tries to ensure that neither of the former two ideologies are allowed to wreak havoc on the fragile base of our western democracies .

    What we see now in the USA is the final victory of the ‘Goldwater ‘ wing of American Republicanism in which the economic future of hundreds of millions of Americans is sacrificed on the altar of the doctrine that ‘might ‘ is right and that whoever has the most money deserves to pick the President who will rule the USA in the interest of capital and not the people .

    Time for a new NEW DEAL in the USA .

  • Rory

    There has not, so far as I know, yet been any response to Brian’s earlier post on the shenanigans we are currently being invited to allow us to entertain ourselves with on the NHS – a roadshow that I would endearingly refer to as, “Fuck off and Die!”. Indeed I demurred from coming into that discussion myself, waiting, like a little coward (or clever tactician), for someone else to fire the first shot, thus giving away his position so that I could nail him with a sharp response. But none fired and I can’t say I blame them.

    Had I dared to open fire first I would have recalled how, upon watching the first bricks being dismantled from the Berlin Wall, my first thoughts were, “Uh-oh! We’re all fucked now!” as I gloomily awaited the emasculation of the trade unions, the destruction of social medicine, housing, education, care for the old and for the mentally ill and the socially inadequate and any and all who were in any way needy while the human failings of greed and thuggery were advanced as worthy of merit.

    Margaret Thatcher said it best when she asked, “Society? What society?” in succinctly encapsulating the creed of “Government bad – market good”. She like others believed that the delights that the market had to offer could only but inspire greater effort for greater reward in order that the masses could purchase the ever increasing array of shiny baubles (which eventually included shelter itself) available in the market.

    The effort and productivity developed alright – the problem was that it was not among the immediate consumer market and so, in order that the goodies (which now included designer homes with designer kitchens for mamma as well as designer jeans for infants and designer cologne for dadda) not perish upon the shelf, the marketeers now needed to sell money to the their unproductive wannabe customers. This distortion took the form where the actuality of a common commercial transaction was that a buyer bought money (credit) of say, £3,000 which he was willing to purchase for, say, £5,000 providing a three piece suite of garish, inferior quality was thrown in as a come-along. The seller then sought out credit to cover the credit that he must advance and had to look to those areas where real surplus capital was being created by real effort and real increased productivity and we all know where that was and it was not in the decadent West where grossly decadent private investors demanded an ever increasing unearned rate of profit on the reinvested unearned profits of their (more likely daddy’s or grand daddy’s or great-great grand daddy’s) earlier thefts of the application of labour to the God given bounty of the earth, which is the only possible formula for the creation of wealth.

    The big social problem facing us is the very real possibilty of momentous social upheaval driven by the collapse of falsely generated expectations. If this marries with great deprivation the consequences are potentially very bloody indeed.

    At the moment it appears that the ghostly echoes of Herbert Hoover are outshouting the ghostly warnings of FDR – mainly, I suspect, because the heedless fat-cats of greed see no possibility of the ghost of Lenin materialising and driving them into the relative safety of the ghostly shelter of Keynes.

    This is a race I shall not be betting on but one which I shall view with fervent interest.

  • OC

    A big chunk of this is good old fashioned fraud.

    Vig the appraiser, and a wink and a nod later, the loan is approved.

    Once this scam is exposed, everyone’s running for cover.

    A lot of self-confessed financial experts must now admit that they don’t really know anything.

  • earnan

    it’s all Bush/Cheney’s fault. None of these structural problems were in the making before Jan 20, 2001.

    BTW, GDP growth for the last quarter was 3.3%. (The average since WW II has been 3.4%) We are not in a recession yet, although one is probably coming. Just wanted to point that out with everyone throwing the word around while it isn’t true.

  • Rory

    Those concerned about the safety of any capital or savings they may hold would do well, following Damien Hirst’s successful auction at Sotheby’s yesterday, to consider plunging the lot into investment in art, as I have done.

    My depleted savings meant that I was unable to stretch to the purchase of a pickled cow but I have wisely purchased a jar of pickled pigs’ feet from the Irish butchers in Willisden.

  • Jean Baudrillard

    Greenflag You might want to research the topic ie socialism.

    Sorry, I was being a mite facetious there. My point was merely that the claims for the power of the free market to self-regulate have always been so much hot air.

    Even in the US – the crucible of dog-eat-dog capitalism – the entire show has always required the massive intervention of the state to keep the thing going. It has never been in the interest of the rich and powerful to explain this. Because if the state has such a role to play in Wall Street why can’t it also be used to help the lives of the less well off?

    If ever there was a case to be made for the power of social democracy, then this is the week to make it.

    By the way, I don’t entirely agree with your point that we’re seeing the final victory of Goldwater politics. What we’re actually seeing (I hope) is the long slow death of the American far right. Hopefully, we’ll see a rebalancing over the next decade.

  • Greenflag

    JB ,

    ‘I don’t entirely agree with your point that we’re seeing the final victory of Goldwater politics.’

    I was being a bit more than a mite facetious 🙂

    ‘ Because if the state has such a role to play in Wall Street why can’t it also be used to help the lives of the less well off’

    Because while it’s okay for the ‘pain’ to trickle down to middle and working class Americans it’s not ‘fair ‘ if it’s allowed to trickle up to the likes of Bear Stearns , Merril Lynch , Lehman’s etc etc .

    ‘ What we’re actually seeing (I hope) is the long slow death of the American far right.’

    One would hope so however the ‘far right’ have accumulated so much ‘capital’ over the past several decades that their capacity to ‘buy’ votes and elections should not be underestimated . And then there are the ‘born again’ bozos of the South and middle of the country who in 1932 would have supported FDR on ‘economic grounds ‘ but who today will vote for McCain/Palin based on abortion , creationism , Armageddon and Rapture 🙁

    It’s not exactly 1929 and Herbert Hoover time again even if some of the current signs are reminiscent of that era .

    ‘Hopefully, we’ll see a rebalancing over the next decade. ‘

    This is why I’ve stated on earlier threads that the USA is moving into a new paradigm – great word that 🙂

    However one outcome of the demise of many of the Wall St ‘casino ‘ merchants is the even greater concentration of financial capital among the few who will be left standing (eg Bank of America ). So while many of us want to see a silver lining emanating from the current clouds if we peer a little closer there are ‘darker ‘ clouds ahead.

    In six months time it might be possible to see the wood from the trees . Until then hold on to your hat and buy euros or yen or swiss francs .

  • I will buy gold. This is the only real money. And there will be a bank run, believe me! No need to put your cash under the mattress. Just give me gold.

  • More banks will go bankrupt and we will see a bank run. This is inevitable. Too bad that we will have to live through it… The European Central Bank and all the central banks may pump billions into the system but this will only lead to hyper inflation.

  • Dewi

    HBOS shares down 40% at worse point today…

  • Dave

    There are two main agencies that have primary responsibility for the supply of cheap credit in ‘the west’: the US Federal Reserve and the European Central Bank.

    Under Alan Greenspan, and under pressure from the left-leaning ideology of the Democrats in the US House of Representatives), Greenspan fell over himself to encourage subprime lending to poor risk groups at ridiculously low rates that were set by his Reserve, praising them as “niche credit programs for immigrants” and “extending credit to a broader spectrum of consumers” – such as those who couldn’t afford to repay them but were enticed with low rates.

    “Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country.

    With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.”

    From colonial times through the early twentieth century, most people had quite limited access to credit, and even when credit was available, it was quite expensive. Only the affluent, such as prominent merchants or landowners, were able to obtain personal loans from commercial banks. Working-class people purchased goods with cash or through barter, since banks did not make consumer loans to the general public.”

    http://www.federalreserve.gov/BoardDocs/speeches/2005/20050408/default.htm

    His faith in “advances in technology” and compute-based “credit-scoring models” was badly misjudged and in no way alleviated the risk posed by lending money to poor people as he dementedly claimed. This is what happens when socialist politicians put pressure on institutions to distort the free market.

    The US Federal Reserve was well aware of what effect the supply of cheap credit would have on the housing market, i.e. that it would lead to rapid house price inflation. This, of course, would have the opposite effect of the intended outcome, i.e. it would exclude most poorer (and sensible) people from being able to afford starter homes.

    “Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission.” — Board of Governors of the Federal Reserve System, September 2005.

    Likewise, the European Central Bank proffered cheap credit to lending banks in the Eurozone, setting interest rates at ridiculously low levels that would promote credit growth and promote rapid house price inflation, leading to people borrowing money at very low rates that they would not be able to repay when those rates rose to realistic levels and which the lending backs would not be able to reclaim via repossessions of artificially inflated assets which would, of course, collapse to pre-inflation levels as the credit bonanza that fuelled their inflation came to a halt.

    If the Irish Central Bank still had sovereignty over Irish monetary policy instead of our Europhilic government transferring that sovereignty to the European Central Bank in 1999, then interest rates would have been set under the Taylor at 6% and not 2%, and Ireland would not have had its economy wrecked by rapid house price inflation and Irish banks would not have had massive debts secured against assets that are vastly overinflated and rapidly falling, nor would the poor sods who are stuck with 35-year mortgages, negative equity, have to work 24/7 just to repay the ever-increasing repayments of a shoebox that they can’t sell.

    It is better to have no regulation of Irish monetary policy than to have regulation of it that is set by the EU and that wholly ignores underlying dynamics and actual needs of the Irish economy. Ireland’s interest rates should have been set at 6% to meet the needs of the Irish economy at a time when the EU set them at 2% under their risible one-size-fits-all policy. This is a de jure example of how surrendering sovereignty over our monetary policy to the EU has destroyed the Irish economy. It shows the harm that mindless Europhiles who promote integration do to their own country.